Full of gloom. I am full of gloom this morning despite those sizeable share market rallies. I have just read Paul Krugman’s column in the New York Times where the Nobel prize winner gives his verdict on the plans of the Obama administration to rescue United States banks.
“Mr Obama has apparently settled on a financial plan that, in essence, assumes,” this expert who writes so well tells me, “that banks are fundamentally sound and that bankers know what they’re doing. It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr Obama realizes that he needs to change course, his political capital may be gone.”
And it gets worse, even more depressing. Writes Krugman:
But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.
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You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.
Even more important, however, is the way Mr Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.
Now I know that our boy Kevvie has just arrived in Washington to sort out the world’s financial problems, but I fear he will be no more influential than the Nobel prize winner in getting the US political system to change its collective mind. All we can hope is that the market assessment of the rescue plan is correct and that Mr Krugman is just another doomsayer. Unfortunately, and this is behind my gloom, the Harvard economist over the last couple of years has been depressingly accurate in his assessment of coming events.
Queensland’s unholy alliance. City slickers, it seems, are finding it difficult to accept the idea that they should be represented in Parliament by a party dominated by rural interests. The Liberal National Party failed quite miserably in winning seats in metropolitan areas be they in Brisbane, the Gold Coast, Townsville or Cairns. This is something that Opposition Leader Malcolm Turnbull needs to study carefully as picking up city seats in Queensland will be vital to his federal electoral chances. The amalgamation was driven by nothing else than a desire to avoid three cornered contests at the State poll were optional preferential voting causes a leakage of conservative support. There is no such advantage at a federal election to compensate for the reluctance so many Queenslanders clearly have in voting for anything with the word National (or the initial N for that matter) in it.
Bring back formal export controls is the easy answer. Whether a state-owned Chinese company investing in Australian resources is any better or worse than having shares controlled by a group of foreign merchant bankers seems largely irrelevant to me. Neither Chinalco nor the institutions that are currently the dominant owners of Rio Tinto could care less about the notion of Australia’s national interest. Maximising their own financial return motivates both kind of shareholders and in recent years this happens to have coincided with the broader Australian interest as well. The moment it doesn’t — for example if the company started engaging in transfer pricing with exports at below market rates — our government has the power to reintroduce formal export price controls. That would quickly fix that problem. Less easy to solve is the problem of executives running the show in their own personal interest as when Rio decided to buy Alcan where preserving executive jobs was clearly of more significance than either shareholder or Australian interests.
A novel and worthwhile departure from Westminster tradition. The Tasmanian House of Assembly is making a little parliamentary history today by having two ministers who are members of the Legislative Council upper house sitting in the lower chamber to answer questions. For the first time, Liberal and Green members will be able to ask questions directly of the Treasurer Michael Aird and the Housing Minister Lin Thorp. Neither party is represented in the Legislative Council.